France's Thwarted Economic Glory

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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There’s this country in Europe with a large, growing working-age population. Its workers are more productive than their counterparts in the other big European economies, and they’re far from maxed out -- they spend fewer hours on the job than is the norm in developed countries. Income inequality isn’t worsening in this affluent land, and the people there live long, healthy lives. They also have lots of babies, by European standards. The museums are great, too.

Yes, yes, I’m talking about France. It’s a nice place. You should visit.

It has also been stuck in an economic funk for decades. Since 1990, according to the Paris-based Organization for Economic Cooperation and Development, France’s per capita gross domestic product has grown more slowly than that of any other wealthy nation but one (Italy). The country’s manufacturing output today is lower than it was in 1990.

It's pretty well known that France hasn’t been an economic dynamo for a while. What is less often noted is that conditions are ripe for much, much stronger performance. Here’s the outlook on working-age population:

That’s right, between 2045 and 2050, France’s working-age population is projected to pass Germany’s to become the largest in the euro zone. Then there’s productivity:

That’s right, French workers are more productive than German workers -- and according to the OECD trail only those in the U.S. and a few small, rich European countries in output per hour worked. Multiply that productivity times the projected working-age population, and you might think France would soon be poised to overtake Germany as the continent’s biggest economy.

But remember, France’s economy is one of the slowest-growing on the planet. So what gives? Is it the 35-hour workweek imposed by the French government in 2000? Well, maybe a little -- as noted, the 1,489 hours that the average French worker labored in 2013 was low by international standards. In the U.S. it was 1,788 hours, in Greece 2,037. But for German workers the number was even lower -- just 1,388 hours, the least in the OECD. Yet Germany’s economy is by all appearances much healthier than France’s. It has certainly grown faster over the past few decades.

No, the main issue is that not enough French people are working. The unemployment rate, at 10.5 percent, is more than double Germany’s 4.7 percent. And labor force participation, at 71.2 percent of the population in France, is substantially lower than Germany’s 77.5 percent. In the words of Bloomberg euro-zone economist Maxime Sbaihi, who wrote the research note that got me started on this topic:

The structurally high unemployment rate and low participation rate in France reflect a labor market split in two. While outsiders struggle with unemployment or precarious forms of work contracts, insiders often enjoy well-paid, open-ended contracts protected by a 3000-page labor code which makes dismissal procedures costly and lengthy.

French law makes it really, really, really hard to fire people, which of course makes employers think twice or thrice or more before hiring anybody. The country is also plagued, according a recent OECD survey, by an inefficient, too-big public sector; poorly designed welfare programs; and a vocational-education system that spends lots of money but “fails to provide commensurate results to those in greatest need.”

There has been some recent streamlining of French labor regulations, including the introduction of something called the rupture conventionelle, a simplified process for mutually agreed job terminations that I don’t fully understand the significance of but had to mention because the name is so cool. Still, I get the impression that the steps taken so far have been minuscule compared with the labor market changes in other European countries in recent decades. It isn’t that the French need to adopt the dreaded Anglo-Saxon model and be like the U.S. or UK; just taking a few pointers from Germany, Denmark and the Netherlands would probably do the trick.

At this point in such an essay any self-respecting English-speaking journalist should be expected to invoke France’s lost glory and the difficulty the country has in accepting its diminished role, and I guess I just did. But I think it’s time to move past that. The world is paying attention to French intellectuals again -- or at least one French intellectual. And, more to the point, the French economy is well-positioned to become Europe’s biggest within a few decades. A potential new age of at least regional glory lies ahead, if only French voters and politicians would clear the way.

It's possible that France's high productivity is in part the product of its labor-market overregulation -- employers don't want to hire more workers and can't increase workers' hours so they invest in productivity-enhancing technology instead. In that case reforms might result in lower productivity, but I doubt the effect would be all that big. Workers in Denmark have much less job security than those in France but are just as productive, for example.

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Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
Read more